World recession slowing down global pharmaceutical market

World recession slowing down global pharmaceutical market

CHICAGO – One of the many outcomes of the recent BIO International Conference in Atlanta was the perception and comment by industry experts (such as Steve Burrill of Burrill & Company) that Big Pharma companies are becoming dinosaurs.
While the pharmaceutical industry hasn’t yet hit the wreckage status of the Western automobile industry, bad times are coming quickly. This is due to the massive loss of income and sales as a result of patent expirations of blockbuster drugs, the decline in prescriptions, doctor visits and the overall consumer spend decline for health care because of the economic recession.
Though the cost of prescription drugs represents only 10 percent of the total expenses of U.S. health care, the perception to consumers is that it represents much more. The industry is more of a lightning rod for U.S. government action and intervention in pricing – as well as new product approval – more so than other more expensive components of health care (such as hospitals).
In spite of the long development and high cost of drug development, pharma companies are infinitely more profitable than the automotive industry. That may change in the next five years, though, due to the patent expiration situation and potential U.S. government health care reforms. There is a healthy appetite for generic pharmaceuticals that will soon apply to the expensive biotech drugs.
According to the May 2009 edition of Pharmaceutical Executive, insurance companies are also seeking to save money by shifting more and more prescriptions to generics. Blue Cross Blue Shield reports a rise in generic drug use from 53 percent to 65 percent in 2008, which saved at least $2.5 billion for medical insurance plans and its members.
IMS Health (the major pharmaceutical market research firm) estimates that the global pharma market – with 2008 sales of $773 billion – is expected to slow down from 4.8 percent to 2.5 percent to 3.5 percent in 2009 with the U.S portion of this market declining 1 percent to 2 percent due to all the reasons mentioned above.
The only reason the global market is showing any growth is due to the fast growth of emerging markets such as India, China, South Korea, Brazil, Mexico, Russia and Turkey, according to the article. The growth of the market varies significantly around the world.

Region Sales ($B) % % Growth
North America $311.8 40.3% +1.4%
Europe $247.5 32% +5.8%
Asia/Africa/Australia $90.8 11.8% +15.3%
Japan $76.6 9.9% +2.1%
Latin America $46.5 6% +12.6%
Total Worldwide $773 100% 4.8%
Source: Pharmaceutical Executive, May 2009 (IMS Heath data)

Nevertheless, the Big Pharma dinosaurs haven’t yet hit the wall of obsolescence. Those that have diversified in other areas of health care (such as Abbott Labs, Johnson & Johnson and Baxter) seem to be weathering the recession much better than the drug pure plays. Also, those companies that have more quickly embraced biotechnology (products and culture) are also surviving better.
Let’s take a look at the sales results for 2008.
Leading Global Pharma Companies – 2008

Company/Rank/Country 2008 Sales ($ billions) % Change
1. Pfizer (U.S.) $44.2 <0.5%>
2. GlaxoSmithKline (U.K.) $43.0 +11.2%
3. Sanofi-Aventis (France) $38.7 +4.8%
4. Novartis (Switzerland) $36.0 +10.7%
5. AstraZeneca (U.K.) $31.6 +10.1%
6. Johnson & Johnson (U.S.) $24.6 <1.2%>
7. Merck (U.S.) $23.6 <2.4%>
8. Roche (Switzerland) $21.0 +3.4%
9. Eli Lilly (U.S.) $19.3 +9.6%
10. Wyeth (U.S.) $19.0 +2.3%
11. Bristol-Myers Squibb (U.S.) $17.7 +13.6%
12. Abbott (U.S.) $16.7 +14.4%
13. Bayer (Germany) $15.1 +0.6%
14. Amgen (U.S.) $14.7 +2.7%
15. Schering-Plough (U.S.) $14.2 +39.7%
16. Boehringer Ingelheim (Germany) $13.6 +8.3%
17. Takeda (Japan) $12.2 +25.4%
18. TEVA (Israel) $11.1 +17.8%
19. Genentech (U.S.) $10.5 +11.7%
20. Astellas (Japan) $9.7 +24.4%
21. Daiichi Sankyo (Japan) $8.8 +23.6%
22. Novo Nordisk (Denmark) $8.6 +5.4%
23. Merck KGaA (Germany) $7.6 +25.2%
24. Eisai(Japan) $7.2 +29.3%
25. Otsuka (Japan) $6.5 +21.4%
Source: Pharmaceutical Executive, May 2009 (IMS Health data)

Of the top 25 companies, 10 are from the U.S., four are Japanese, three are German, two are British, two are Swiss, one is French, one is Danish and one is Israeli.
Pfizer has retained its leadership for another year and has likely cemented its leadership for at least another year with the recent acquisition of Wyeth. Roche’s acquisition of Genentech, Merck’s acquisition of Schering-Plough and the acquisition of Alcon by Novartis will provide some healthy competition as well.
More mergers and acquisitions (M&A) are in the wind, too. According to the Wall Street Journal on Monday, Europe may be the next site of M&A activity. A number of European companies have put themselves up for bid including Nycomed (Switzerland), Crucell (Netherlands), Solvay (Belgium) and Actavis (Iceland). Also at play is the Irish company Elan.
According to the Wall Street Journal, third-ranking Sanofi-Aventis is said to be in the hunt for targets. What it’s all about, of course, is access to potential blockbuster drugs (i.e. drugs with the capability of selling more than $1 billion a year in sales). The leading drug sales during 2008 were revealing in their impact.

Drug/Company Disease
2008 Sales
% Growth
1. Lipitor (Pfizer) Cholesterol Reduction $13.7 <.9%>
2. Plavix (Sanofi-Aventis/ BristolMyers Squibb Anti-coagulant $8.6 +16.9%
3. Nexium (AstraZeneca) Gastrointestinal disorders $7.8 +7.8%
4. Seretide/Advair (GlaxoSmithKline) Asthma $7.7 +7%
5. Enbrel (Amgen/Wyeth) Arthritis/Gastrointestinal $5.7 +5.6%
6. Seroquel (AstraZeneca) Depression $5.4 +14.9%
7. Zyprexa (Eli Lilly) Anxiety $5.0 <1.8%>
8. Remicade (J&J) Gastrointestinal disorders $4.9 +14%
9. Singulair (Merck Asthma $4.7 +3.1%
10.Lovenox (Sanofi-Aventis) Anti-coagulant $4.4 +8.9%
Source : Pharmaceutical Executive, May, 2009 (IMS Health Data)

It’s amazing that Pfizer has been able to hold on to the Lipitor franchise, which is the largest drug in the history of the pharma industry. This drug is slated for patent expiration starting in 2010. It’s the key driver behind the acquisition of Wyeth due to the huge earnings and revenue hole it will leave once the patent does go.
This same driving effect has propelled many of the other pharma M&A actions in 2009. While the consumer will ultimately be the beneficiary of these patent expirations, so will companies positioned strongly in the generic market such as Novartis and Teva. The generics business will be very brisk during the next five or years.
With the announcement of GM entering bankruptcy in Monday’s morning press, I hope we never see a similar situation with the Big Pharma companies. Unless they really convert themselves into innovators (i.e. biotech companies) both culturally and in products or diversify into other areas of health care, this may well be the pathway of extinction.
See you soon!
Recent columns by Michael Rosen

Michael S. Rosen is president of Rosen Bioscience Management, a company that provides CEO services, including financing and business and corporate development to start-up and early-stage life science companies such as Renovar and Immune Cell Therapy. Rosen also is a founder and board member of the Illinois Biotechnology Industry Organization. He can be reached at
This article previously appeared in, and was reprinted with its permission. The article is not meant to be a stock recommendation.
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